On “tough decisions” (aka “austerity”)

Last week’s YouGov poll, commissioned and published by Progress, showed that, while Labour was accepted as the “nice” party, the Tories were seen as more ready to take the “tough” decisions.  The result was interpreted as an endorsement of the need for such “tough” decisions and therefore as bad news for Ed Miliband and an implicit warning to Labour that their chances of election victory might depend on at least matching the Tories in the willingness to inflict pain as the price of economic recovery.

Such an interpretation is of course entirely consistent with the view, constantly peddled by right-wing opinion, that our economic travails are best understood as a sort of morality tale; we have sinned, through spending too much and not working hard enough, and must accept our punishment if we are to be saved.  But while public schoolboys may find the infliction of pain acceptable – even welcome – there is no reason why the rest of us should be similarly afflicted.

There is after all a quite different narrative from the one that requires economic sado-masochism.  According to this much more credible account, the global financial crisis was the culmination of three decades or more of unregulated market excess, of greed and irresponsibility on the part of the privileged and wealthy, of the neglect of our manufacturing base in favour of the shifting sands of the financial services industry, and of the concession to bankers not only of a virtual monopoly over the creation of money but an unchallengeable role as arbiters of economic policy as well.

It is against this background that we should judge the assertion that what is needed are “tough” decisions that deflect the blame from those responsible for our plight and require a completely unnecessary price to be paid by those who are blameless.  Those supposedly “tough” decisions are just another way of describing austerity which, as a response to recession, is now increasingly discredited by the lessons now being re-learned from the Great Depression of last century, by the Keynesian analysis of what is now required, by the actual experience now being endured by the most vulnerable both in the UK and even more starkly in the euro zone, and by the collapse – through the Reinhart/Rogoff debacle – of the last shreds of intellectual underpinning of the austerity dogma.

“Tough” decisions are the last thing the economy needs.  But there is something of great importance that Labour should be prepared to demonstrate – not the readiness to inflict more pain, but something more difficult and more valuable – the courage to make a coherent assault on the current orthodoxy by offering a credible alternative.

There is now a palpable sense that the day of neo-liberalism is done, but its dead hand continues to inhibit Labour leaders.  They know that any departure from that failed orthodoxy will attract vitriolic attack from its proponents.  But that is no reason to run for cover, as they are constantly advised – even by their supposed friends – they must do. Labour won’t win by competing in the nastiness stakes or by accepting the premises of their opponents.  What they must do is to change the rules of the game through a considered and comprehensive challenge to neo-liberal economic doctrine.

That is a game they can win.  There is a growing appetite, as the failures of neo-liberalism become more and more evident, for a better alternative.  The decisive action that the voters crave may not, after all, be “tough” action that piles on yet more misery, but a clear break from the nostrums that have dominated policy for more than thirty years.   There could well be an electoral as well as economic reward for such courage.

The broad outlines and central themes of that clear alternative are well-established.  In the last three decades, while the rest of the world – China, India, Korea, Brazil, and many others – have become more efficient and competitive, we have paid far too little attention to the competitiveness of our industry.

Our rivals have monitored and protected their competitiveness very carefully.  We have deluded ourselves that we need not bother because we thought we could pay our way on the back of a financial services industry that – even at best – produced benefits for only a tiny minority.

We have neglected manufacturing and its unmatched ability to stimulate innovation, create jobs, produce an immediate return on investment and encourage new skills.  Now that the financial bubble has burst, we find that our manufacturing base is too weak to pick up the slack, and that we dare not grow because our lack of competitiveness means that we would immediately run into obstacles of inflation and trade deficits.

We have allowed monetarism to dictate that growth in the money supply must always be restricted for fear of inflation, whereas more successful economies have understood that credit creation made for productive investment purposes – as the Chinese and others are currently doing – will not be inflationary when it stimulates increased output. As Keynes said, “there are no intrinsic reasons for a scarcity of capital”.

We have handed economic policy over to the tender care of self-interested bankers, and have allowed the money produced by quantitative easing to go straight to the banks’ balance sheets.  We have shown no interest in an in agreed industrial strategy whose purpose it would be to ensure that credit is created (at no cost) to strengthen our industrial base rather than to inflate the housing market and bank profits.

Above all, we are happy to tolerate a high rate of unemployment, with all that means for lost productive capacity and social dislocation.  A Labour commitment to make full employment the central goal of policy – a policy whose outcomes could not be shuffled off to unaccountable bankers but would be the issue by which a democratic government should be judged – would be welcomed as a decisive break with the neo-liberal era.

The fainthearted should be reassured.  There is nothing revolutionary about these elements of a coherent alternative economic policy.  They have been successfully deployed by other more successful economies over a long period.  They are advocated and would be supported by eminent economists, such as Nobel Prize-winning Joseph Stiglitz and Paul Krugman, as well as equally eminent home-grown experts.  There would even be a broad welcome from some of our best-known and highly regarded economic journalists – William Keegan, Larry Elliott, Martin Wolf, and many more.

But, most importantly, this programme would restore self-respect and renewed purpose to Labour and offer a clear and hopeful alternative to the voters – not tough decisions but brave and constructive action.

Image credit: dexterzed / 123RF Stock Photo